UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~May~~August 43, 2003

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 333-73107

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

(Exact Name of Registrant as Specified in its Charter)

Delaware		52-2303510
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

17622 Armstrong Avenue, Irvine, California		92614
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (949) 863-1171

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨*

* The Registrant is not subject to the reporting requirements of Item 405.

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ¨ No x

The number of outstanding shares of registrant’s Common Stock, par value $0.01 per share, was 6,456,619 shares as of ~~June~~September 1615, 2003.

PART I. FINANCIAL INFORMATION

~~Item 1~~Item1. Financial Statements

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

CONSOLIDATED BALANCE SHEETS

(unaudited)

	May 4, 2003			November 3,2002
	August 3, 2003			November 3, 2002
ASSETS
Current assets:
Cash and cash equivalents	$	4121,~~990~~162,~~915~~784		$	30,129,208
Investments		—			6,713
Accounts receivable, net		2322,~~671~~861,~~421~~343			31,344,914
Inventories		5158,~~221~~089,~~323~~709			54,705,873
Deferred income tax benefit		13,445,240			13,383,637
Other		45,~~254~~473,~~519~~524			3,857,975
Total current assets		~~134~~121,~~583~~032,~~418~~600			133,428,320
Property and equipment:
Machinery and equipment		69,~~216~~581,~~621~~029			68,781,604
Leasehold improvements		4849,~~671~~421,~~652~~636			48,186,803
Buildings		25,~~708~~710,~~231~~012			23,782,871
Furniture and fixtures		1415,~~416~~036,~~295~~022			13,748,486
Land		8,798,320			8,798,320
Construction in progress		2,~~609~~748,~~947~~533			2,714,513
		169,421,066			166,012,597
		171,295,552			166,012,597
Less—Accumulated depreciation and amortization		8687,~~953~~762,~~065~~272			82,250,167
		82,468,001			83,762,430
		83,533,280			83,762,430
Deferred financing costs, net		7,~~101~~503,~~190~~225			8,100,736
Deferred income tax benefit		3,155,896			3,217,500
Other assets		7,~~017~~491,~~744~~072			7,398,360
	$	~~234~~222,~~326~~716,~~249~~073		$	235,907,346
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	78,~~629~~728,~~021~~645		$	6,873,932
Accrued expenses		1819,~~304~~921,~~404~~427			16,803,824
Senior subordinated 15.25% notes (Note 5)		39,293,709			—
Current portion of long-term debt		15,361,474			10,159,054
Current portion of long-term debt		13,397,202			10,159,054
Accrued interest expense		1,234,362			6,352,267
Accrued interest expense		6,384,159			6,352,267
Income taxes payable		4,844,653			7,201,500
Income taxes payable		4,709,806			7,201,500
Total current liabilities		50,090,561			47,390,577
Total current liabilities		89,718,301			47,390,577
Long-term debt, net of current portion (Note 5)		239,065,110			259,103,889
Long-term debt, net of current portion		212,865,233			259,103,889
Deferred rent		5,506,205			5,143,785
Deferred rent		5,480,281			5,143,785
Total liabilities		294,661,876			311,638,251
Total liabilities		308,063,815			311,638,251
Redeemable common stock, par value $0.01 per share; issued and outstanding—879,362 and 968,983 shares, respectively		31,630,651			54,059,562
Redeemable common stock, par value $0.01 per share; issued and outstanding —879,362 and 968,983 shares, respectively		44,407,781			54,059,562
Commitments and contingencies (Note 7)
Stockholders’ deficit:
Common stock, par value $0.01 per share; authorized—10,000,000 shares, issued and outstanding—5,577,257 shares		55,772			55,772
Additional paid-in capital		97110,~~745~~522,~~084~~214			93,093,303
Cumulative translation adjustment		~~214~~68,~~630~~437			174,298
Unrealized loss on securities		(42,012	)		(44,148	)
Accumulated deficit		(~~216~~214,~~118~~180,~~821~~865	)		(223,069,692	)
Total stockholders’ deficit		(~~118~~103,~~145~~576,~~347~~454	)		(129,790,467	)
	$	~~234~~222,~~326~~716,~~249~~073		$	235,907,346

See accompanying notes.

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(unaudited)

Thirteen Weeks Ended

~~Twenty~~Thirty-~~six~~nine Weeks Ended

May 4, 2003

April 28, 2002

May 4, 2003

April 28, 2002

August 3,2003

July 28, 2002

August 3, 2003

July 28, 2002

Net sales

8783,~~595~~524,~~390~~456

9288,~~278~~056,~~686~~901

~~185~~269,~~891~~415,~~031~~486

~~180~~268,~~243~~300,~~908~~809

Cost of sales

3435,~~921~~389,~~318~~391

3937,~~216~~475,~~608~~329

78113,~~535~~924,~~503~~894

77115,~~788~~263,~~258~~587

Gross profit

5248,~~674~~135,~~072~~065

5350,~~062~~581,~~078~~572

~~107~~155,~~355~~490,~~528~~592

~~102~~153,~~455~~037,~~650~~222

Selling, general and administrative expenses

4238,~~516~~937,~~320~~959

3534,~~219~~971,~~549~~343

81120,~~834~~772,~~368~~326

69103,~~005~~976,~~111~~453

Operating income

109,~~157~~197,~~752~~106

1715,~~842~~610,~~529~~229

2534,~~521~~718,~~160~~266

3349,~~450~~060,~~539~~769

Interest expense

65,~~551~~919,~~694~~691

5,~~334~~941,~~025~~968

1319,~~158~~077,~~264~~955

1116,~~048~~990,~~531~~499

Other income (expense)

(~~551~~184,~~870~~686

)

~~(38~~40,~~146~~415

)

(~~803~~988,~~547~~232

)

~~126~~167,~~612~~026

Income before income taxes

3,~~054~~092,~~188~~729

129,~~470~~708,~~358~~676

1114,~~559~~652,~~349~~079

2232,~~528~~237,~~620~~296

Income taxes

1,~~107~~154,~~410~~774

53,~~169~~957,~~178~~740

45,~~608~~763,~~478~~252

913,~~360~~318,~~544~~284

Net income

1,~~946~~937,~~778~~955

75,~~301~~750,~~180~~936

68,~~950~~888,~~871~~827

1318,~~168~~919,~~076~~012

Preferred stock dividends

—

1736,~~426,171~~507

—

23,~~721~~458,~~725~~232

Income allocated to common stockholders

1,~~946~~937,~~778~~955

5,~~875~~014,~~009~~429

68,~~950~~888,~~871~~827

1015,~~446~~460,~~351~~780

Comprehensive income, net of tax:

Net income

1,~~946~~937,~~778~~955

75,~~301~~750,~~180~~936

68,~~950~~888,~~871~~827

1318,~~168~~919,~~076~~012

Foreign currency translation adjustments

26(91,~~391~~607

)

(9288,~~059~~607

)

31(64,~~932~~221

)

~~(179~~106,~~146~~065

)

Unrealized loss on hedging transactions

—

(47124,~~684~~171

)

—

(88211,~~358~~737

)

Unrealized gain (loss) on securities

1,257

(317

)

1,257

(317

)

Unrealized loss on securities

—

(317

)

Comprehensive income

1,~~974~~846,~~426~~348

75,~~244~~915,~~120~~372

68,~~984~~824,~~060~~606

1218,~~900~~813,~~255~~023

Earnings per common share:

Basic

0.30

0.9077

1.0838

12.6036

Diluted

0.29

0.8976

1.0333

12.5934

Shares used in the calculation of earnings per common share:

Basic

6,456,619

6,546,240

6,~~459~~458,~~068~~254

6,546,240

Diluted

6,~~696~~647,~~866~~508

6,~~606~~635,~~240~~483

6,~~722~~703,~~682~~211

6,~~570~~597,~~436~~557

See accompanying notes.

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Twenty-six Weeks Ended
	Thirty-nine Weeks Ended
	May 4,2003			April 28, 2002
	August 3, 2003			July 28, 2002
Cash flows from operating activities:
Net income	$	68,~~950~~888,~~871~~827		$	1318,~~168~~919,~~076~~012
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		812,~~391~~528,~~526~~281			711,~~414~~146,~~552~~072
Amortization of discount on 12.5% notes due 2009		69103,~~200~~799			69103,~~200~~800
Amortization of deferred loan costs		~~999~~1,~~546~~540,813			1,~~039~~552,~~318~~213
(Gain) loss on disposal of property and equipment		547,357			(6,450	)
Loss on disposal of property and equipment		656,043			124,401
Partnership losses		~~438~~655,~~472~~181			~~452~~676,~~422~~962
Decrease in accounts receivable		78,~~673~~483,~~493~~571			7844,~~369,714~~019
Decrease in inventories		3,484,550			4,943,300
(Increase) decrease in inventories		(3,383,836	)		2,752,660
Increase in other current assets		(~~396~~1,~~544~~615,549	)		(76287,~~300~~068	)
(Increase) decrease in other assets		(266,911	)		90,354
Increase in other assets		(1,122,542	)		(1,275,297	)
Increase (decrease) in accounts payable		~~755~~1,~~089~~854,713			(2,~~373~~432,~~289~~623	)
Increase (decrease) in accrued expenses		1,500,580			(752,881	)
Increase in accrued expenses		3,117,603			1,495,089
Increase (decrease) in accrued interest expense		564,853			(164,236	)
Decrease in accrued interest expense		(4,584,944	)		(2,884,402	)
Increase (decrease) in income taxes payable		(2,~~491~~356,~~694~~847	)		43,~~167~~229,~~387~~317
Increase in deferred rent		~~336~~362,~~496~~420			—
Net cash provided by operating activities		2825,~~556~~127,~~884~~533			3533,~~341~~964,~~167~~155
Cash flows from investing activities:
Proceeds from sale of property and equipment		2022,500			614,~~450~~900
Purchase of property and equipment		(712,~~653~~960,~~763~~887	)		(68,~~009~~866,~~273~~190	)
Sale of short-term investments		6,713			552
Capital distributions from partnership		~~200~~360,000			~~227~~336,500
Net cash used in investing activities		(712,~~426~~571,~~550~~674	)		(58,~~774~~514,~~771~~238	)
Cash flows from financing activities:
Principal payments on long-term debt		(46,~~321~~452,~~730~~317	)		(1719,~~667~~012,~~617~~357	)
Proceeds from bank borrowings		30,272,906			—
Principal payments on 15.25% subordinated debt		(39,293,709	)		—
Redemption of redeemable common stock		(5,000,000	)		—
Net cash used in financing activities		(9,321,730	)		(17,667,617	)
Financing fees and expenses		(943,303	)		—
Effect of exchange rate changes		53,103			(306,493	)
Net cash used in financing activities		(21,416,423	)		(19,012,357	)
Change in value of hedging transactions		—			(151,168	)
Effect of exchange rate changes		(105,860	)		180,730
Net increase in cash and cash equivalents		11,861,707			11,441,118
Change in value of hedging transactions		—			(360,792	)
Net increase (decrease) in cash and cash equivalents		(8,966,424	)		6,257,498
Beginning balance, cash and cash equivalents		30,129,208			26,210,874
Ending balance, cash and cash equivalents	$	4121,~~990~~162,~~915~~784		$	3732,~~651~~468,~~992~~372

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(unaudited)

	Twenty-six Weeks Ended
	Thirty-nine Weeks Ended
	May 4,2003			April 28, 2002
	August 3, 2003			July 28, 2002
Supplemental disclosures of cash flow information:
Cash received for interest income	$	~~263~~372,~~855~~358		$	~~293~~835,~~390~~498
Cash paid for:
Interest expense	$	1121,~~491~~972,~~865~~348		$	917,~~873~~745,~~460~~169
Income taxes	$	78,~~110~~228,~~523~~421		$	511,~~388~~057,~~830~~456
Supplemental disclosure of noncash financing activity:
Supplemental disclosure of noncash financing activities:
Dividends accrued on mandatorily redeemable preferred stock	$	—		$	23,~~721~~458,~~725~~232
Conversion of manditorily redeemable preferred stock and accrued dividends to subordinated notes	$	—		$	38,760,748
Conversion of accrued interest to subordinated notes	$	532,961		$	—
Unrealized gain (loss) on securities	$	2,136		$	(542	)
Adjustment of redeemable common stock to fair value	$	(417,~~651~~428,~~825~~911	)	$	103,~~658~~875,~~813~~932

See accompanying notes.

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation and Company Operations

The accompanying unaudited consolidated financial statements of St. John Knits International, Incorporated (“SJKI”) and its subsidiaries, including St. John Knits, Inc. (“St. John”), reflect all adjustments (which include only normal recurring adjustments) considered necessary to present fairly the financial position, results of operations and cash flows for the periods presented. SJKI and its subsidiaries are collectively referred to herein as “the Company.” The accompanying unaudited consolidated financial statements and notes thereto should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended November 3, 2002 as filed with the Securities and Exchange Commission on January 31, 2003.

The results of operations for the periods presented are not necessarily indicative of the operating results that may be expected for the year ending November 2, 2003.

Company Operations

The Company is a leading designer, manufacturer and marketer of women’s clothing and accessories. The Company’s products are distributed primarily through specialty retailers and Company-owned retail boutiques and outlet stores in the United States and internationally. All intercompany and interdivisional transactions and accounts have been eliminated.

Definition of Fiscal Year

The Company utilizes a 52-53 week fiscal year whereby the fiscal year ends on the Sunday nearest to October 31. The quarters also end on the Sunday nearest the end of the quarter, which accordingly were ~~May~~August 43, 2003 and ~~April~~July 28, 2002.

Dividends

SJKI has not paid any cash dividends to its common stockholders since the completion of the mergers in July 1999. SJKI does not anticipate the payment of any cash dividends on its common stock in the future.

2. Stock Option Plan

The Company has one stock-based employee compensation plan, the 1999 St. John Knits International, Incorporated Stock Option Plan (the “1999 Plan”). Options granted under the 1999 Plan are nonstatutory stock options. During the first ~~six~~nine months of fiscal ~~year~~ year 2003, the Company granted a total of 60,000 stock options with an exercise price of $55.79 per share. The exercise price of the stock options represents the estimated fair market value, as determined by the board of directors, of the Company’s common stock on the date of grant. The Company accounts for the plan under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees, and ~~Related~~ Related Interpretations”. No stock-based employee compensation cost is reflected in net income, as all options granted under the 1999 Plan have an exercise price equal to the estimated fair market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per common share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation”.

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(unaudited)

	Thirteen Weeks Ended				~~Twenty~~Thirty-~~six~~nine Weeks Ended
	May 4, 2003		April 28, 2002		May 4, 2003		April 28, 2002
	August 3, 2003		July 28, 2002		August 3, 2003		July 28, 2002
	(in thousands, except per share amounts)
Net income, as reported	$	1,~~947~~938	$	75,~~301~~751	$	68,~~951~~889	$	1318,~~168~~919
Less: total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects		~~154~~153		234		~~290~~433		~~467~~700
Pro forma net income	$	1,~~793~~785	$	75,~~067~~517	$	68,~~661~~456	$	1218,~~701~~219
Earnings per common share:
Basic—as reported	$	0.30	$	0.9077	$	1.0838	$	12.6036
Basic—pro forma	$	0.28	$	0.8673	$	1.0331	$	12.5225
Diluted—as reported	$	0.29	$	0.8976	$	1.0333	$	12.5934
Diluted—pro forma	$	0.27	$	0.8572	$	01.9926	$	12.5224

3. Earnings Per Common Share

Basic earnings per common share is computed by dividing income allocated to common stockholders by the weighted average number of common shares outstanding, excluding the dilutive effect of common stock equivalents, including stock options. Diluted earnings per common share includes all dilutive items and is calculated based upon the treasury stock method, which assumes that all dilutive securities were exercised and that the proceeds received were applied to repurchase outstanding shares at the average market price during the period. Preferred stock dividends are deducted from net income to arrive at income allocated to common stockholders.

The following is a reconciliation of the Company’s weighted average shares outstanding for the purpose of calculating basic and diluted earnings per common share for all periods presented:

	Thirteen Weeks Ended		~~Twenty~~Thirty-~~six~~nine Weeks Ended
	May 4, 2003	April 28, 2002	May 4, 2003	April 28, 2002
	August 3, 2003	July 28, 2002	August 3, 2003	July 28, 2002
Weighted average shares outstanding	6,456,619	6,546,240	6,~~459~~458,~~068~~254	6,546,240
Add: dilutive effect of stock options	~~240~~190,~~247~~889	6089,~~000~~243	~~263~~244,~~614~~957	2451,~~196~~317
Shares used to calculate diluted earnings per share	6,~~696~~647,~~866~~508	6,~~606~~635,~~240~~483	6,~~722~~703,~~682~~211	6,~~570~~597,~~436~~557

4. Inventories

Inventories are comprised of the following:

	May 4, 2003		November 3, 2002
	August 3, 2003		November 3, 2002
Raw materials	$	1314,~~661~~637,~~885~~361	$	12,986,013
Work-in-process		79,~~909~~436,~~949~~893		8,641,353
Finished products		2934,~~649~~015,~~489~~455		33,078,507
	$	5158,~~221~~089,~~323~~709	$	54,705,873

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(unaudited)

5. Senior Subordinated 15.25% Notes

~~The~~At May 4, 2003, the Company had $39.3 million of 15.25% notes outstanding ~~at May 4, 2003~~. The Company had the option to redeem the notes in cash for the face value of the notes plus accrued and unpaid interest before January 2, 2004. ~~The~~Effective ~~Company’s~~May ~~ability~~30, to2003, ~~call~~the Company redeemed such notes. Prior to initiating this transaction, the Company’s credit agreement was ~~subject~~amended to allow for the redemption and to provide for additional borrowing of $30 million. The proceeds of this additional borrowing, ~~among~~together ~~other~~with ~~things~~cash on hand, ~~the~~were ~~approval~~used ofto redeem the ~~financial~~notes. ~~institutions~~The ~~which~~redemption ~~issued~~of the ~~Company’s~~notes ~~credit~~and ~~facilities~~accrued interest totaled $41.8 million. The ~~Company~~amendment ~~received~~increased ~~such~~the ~~approval~~interest ~~and~~rate on the ~~notes~~total ~~were~~outstanding ~~redeemed~~balance onof ~~May~~the 30bank borrowings by increasing the current spread over the banks borrowing rate and LIBOR (1.125% at August 3, 2003) by 0.75%. ~~Therefore,~~The ~~the~~Company ~~notes~~paid ~~have~~fees ~~been~~of ~~classified~~approximately as$1 million ~~current~~to incomplete the ~~accompanying~~amendment. ~~balance~~These ~~sheet~~fees have been recorded as ofdeferred ~~May~~financing 4,costs ~~2003.~~and ~~See~~will ~~note~~be 9amortized ~~for~~over ~~additional~~the ~~information~~life onof the ~~redemption~~agreement.

6. Recent Accounting Pronouncements

In July 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost was recognized at the date of an entity’s commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. The Company will apply the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002 as required.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of SFAS No. 123.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both interim and annual financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The adoption of SFAS No. 148 did not have a material impact on the Company’s financial position or results of operations.

In November 2002, the FASB issued FASB Interpretation (“FIN”) No. 45, “Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others”, an interpretation of FIN Nos. 5, 57 and 107, and rescission of FIN No. 34. FIN No. 45 elaborates on the disclosures to be made by the guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002;, while, the provisions of the disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of ~~the recognition provisions of~~ FIN No. 45 did not have a material impact on the Company’s financial position or results of operations.

In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities”, an interpretation of Accounting Research Bulletin No. 51. FIN No. 46 requires that variable interest entities be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns or both. FIN No. 46 also requires disclosures about variable interest entities that companies are not required to consolidate but in which a company has a significant variable interest. The consolidation requirements of FIN No. 46 apply to variable interest entities created after January 31, 2003. The consolidation requirements apply to entities established prior to January 31, 2003 in the first fiscal year or interim period beginning after June 15, 2003. The adoption of FIN No. 46 is not expected to have a material impact on the Company’s financial position or results of operations.

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(unaudited)

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Instruments with Characteristics of Both Liabilities and Equity”, which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that an issuer classify a financial instrument that is within its scope, which may have previously been reported as equity, as a liability (or an asset in some circumstances). This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company does not believe that the adoption of this standard will have a material impact on its financial position or results of operations.

7. Commitments and Contingencies

During the normal course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These indemnities include those given to various lessors in connection with facility leases for certain claims arising from such facility or lease and indemnities to directors and officers of the Company to the maximum extent permitted under the laws of the State of Delaware. The Company has also issued guarantees, in the form of letters of credit, to cover contractual commitments, including merchandise purchases from foreign vendors and to secure the payment for potential future workers’ compensation claims. The Company had $11.85 million of letters of credit outstanding at ~~May~~August 43, 2003. Of this total, $9.9 million is related to potential future workers’ compensation claims. The Company has accrued a liability for the estimated claims, both reported and incurred but not yet reported, on the accompanying consolidated balance sheets. The duration of these indemnities, commitments and guarantees varies, and in certain cases, is indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. The Company has not recorded any liability for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets other than as noted.

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(unaudited)

8. Segment Information

The Company has two reportable business segments, wholesale and retail ~~sales~~. For the ~~second~~third quarter and first ~~six~~nine months of fiscal year 2003, retail sales were generated through the Company’s 30 St. John boutiques and 1314 St. John outlet stores. In addition, the Company had sales from two St. John Home stores and one St. John Home outlet store which were closed during the first six months of fiscal 2003. Management evaluates segment performance based primarily on revenue and earnings from operations.

Segment information is summarized as follows for the periods indicated:

Wholesale

Retail

Eliminations

Total

(in thousands)

Second Quarter Fiscal 2003

Third Quarter Fiscal 2003

Net sales

7369,~~702~~093

3635,~~575~~430

(2220,~~682~~999

)

8783,~~595~~524

Operating income

12,~~416~~145

21,~~219~~050

(43,~~477~~998

)

109,~~158~~197

Capital expenditures

21,~~450~~137

24,~~699~~170

—

5,~~149~~307

Depreciation and amortization

2,~~425~~466

1,~~542~~671

—

34,~~967~~137

Second Quarter Fiscal 2002

Third Quarter Fiscal 2002

Net sales

7174,~~623~~067

3830,~~335~~896

(1716,~~679~~906

)

9288,~~279~~057

Operating income

1316,~~740~~854

~~4,876~~634

(~~773~~1,878

)

1715,~~843~~610

Capital expenditures

1,~~726~~123

21,~~984~~734

—

42,~~710~~857

Depreciation and amortization

2,~~661~~552

1,~~032~~180

—

3,~~693~~732

First Six Months Fiscal 2003

First Nine Months Fiscal 2003

Net sales

~~153~~222,~~376~~469

77112,~~559~~989

(4566,~~044~~043

)

~~185~~269,~~891~~415

Operating income

2840,~~565~~710

45,~~935~~985

(711,~~979~~977

)

2534,~~521~~718

Capital expenditures

34,~~779~~916

38,~~875~~045

—

712,~~654~~961

Depreciation and amortization

47,~~945~~410

35,~~447~~118

—

812,~~392~~528

First Six Months Fiscal 2002

First Nine Months Fiscal 2002

Net sales

~~144~~218,~~691~~758

75106,~~281~~177

(3956,~~728~~634

)

~~180~~268,~~244~~301

Operating income

3146,~~443~~456

6,~~235~~869

(4,~~227~~264

)

3349,~~451~~061

Capital expenditures

23,~~355~~478

35,~~654~~388

—

68,~~009~~866

Depreciation and amortization

57,~~370~~921

23,~~045~~225

—

711,~~415~~146

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(unaudited)

9. Subsequent Event

Effective May 30, 2003 the Company redeemed its senior subordinated 15.25% notes for cash at a price equal to the face value of the notes plus accrued and unpaid interest. Prior to initiating this transaction, the Company’s credit agreement was amended to allow for the redemption and to provide for additional borrowing under the tranche B facility of $30 million. The proceeds of this additional borrowing, together with cash on hand, were used to redeem the notes. The redemption of the notes and accrued interest totaled $41.8 million. The amendment increased the interest rate on the total outstanding balance of the bank borrowings by increasing the current spread over the banks borrowing rate and LIBOR by 0.75%. The Company paid fees of approximately $1 million to complete the amendment.

10. Supplemental Condensed Consolidated Financial Information

The Company’s payment obligations under the senior subordinated notes are guaranteed by certain of the Company’s wholly owned subsidiaries (the “Guarantor Subsidiaries”). Such guarantees are full, unconditional and joint and several. Except for restrictions under applicable law, there are no material restrictions on distributions from the Guarantor Subsidiaries to SJKI. Separate financial statements of the Guarantor Subsidiaries are not presented because the Company’s management has determined that they would not be material to investors. The following supplemental financial information sets forth, on an unconsolidated basis, balance sheet, statement of income, and statement of cash flow information for the Parent Company (consisting of SJKI and St. John), for the Guarantor Subsidiaries and for the Company’s other subsidiaries (the “Non-Guarantor Subsidiaries”). During the third quarter of fiscal 2003, the Company set up a new entity to hold its retail operations. The new company operates under the name of St. John Apparel, LLC and is a Guarantor Subsidiary. The supplemental financial information reflects the investments of the Parent Company in the Guarantor Subsidiaries and Non-Guarantor Subsidiaries using the equity method of accounting. The supplemental financial information is presented for the periods as of ~~May~~August 43, 2003 and November 3, 2002, and for the 13 and 2639 weeks ended ~~May~~August 43, 2003 and ~~April~~July 28, 2002.

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET

~~MAY~~AUGUST 43, 2003

(UNAUDITED)

	ParentCompany			GuarantorSubsidiaries			Non-guarantorSubsidiaries	~~Non-guarantorSubsidiaries~~			Eliminations	~~Eliminations~~			Consolidated	~~Consolidated~~
	(Amounts in thousands)
ASSETS
Current assets:
Cash, cash equivalents and investments	$	4120,~~178~~098		$	—483		$	$582	~~813~~		$	$—	—		$	$21,163	~~41,991~~
Accounts receivable, net		2219,~~118~~930			1,817			1,114	~~1,552~~							22,861	~~23,671~~
Inventories(1)		4821,~~803~~016			133,641			3,433	~~2,417~~							58,090	~~51,221~~
Deferred income tax benefit		13,445														13,445	~~13,445~~
Other		4,~~179~~695			645			134	76							5,474	~~4,255~~
Intercompany accounts receivable		52,~~733~~268			895							(3,163	~~(5,733~~)	)		—	—
Total current assets		~~135~~81,~~456~~452			237,481			5,263	~~4,858~~			(3,163	~~(5,733~~)	)		121,033	~~134,583~~
Property and equipment, net		7547,~~632~~443			28,602			7,488	~~6,836~~							83,533	~~82,468~~
Investment in subsidiaries		(758,~~782~~310	)									(58,310	~~7,782~~)			—	—
Receivable from consolidated subsidiaries		1519,~~425~~448										(19,448	~~(15,425~~)	)		—	—
Deferred financing costs		7,~~101~~503														7,503	~~7,101~~
Deferred income tax benefit		3,156														3,156	~~3,156~~
Other assets		54,~~981~~427			1,053			2,011	~~1,037~~							7,491	~~7,018~~
Total assets	$	~~234~~221,~~969~~739		$	267,136		$	$14,762	~~12,731~~		$	$(80,921	~~(13,376~~)	)	$	$222,716	~~234,326~~
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	68,~~954~~446		$	—		$	$283	~~675~~		$	$—	—		$	$8,729	~~7,629~~
Accrued expenses		1716,~~613~~832			~~692~~2,278			812	(1	)						19,922	~~18,304~~
Senior subordinated 15.25% notes		39,294															39,294
Current portion of long-term debt		15,361														15,361
Current portion of long-term debt		13,313							84								13,397
Accrued interest expense		1,234														1,234
Accrued interest expense		6,384															6,384
Intercompany accounts payable								3,163				(3,163	)			—
Income taxes payable		6,~~451~~836						(1,991	~~(1,741~~)	)						4,845	~~4,710~~
Intercompany accounts payable									5,733				(5,733	)			—
Total current liabilities		48,709			2,278			2,267				(3,163	)			50,091
Total current liabilities		90,009			692				4,750				(5,733	)			89,718
Intercompany payable					8,869			10,579				(19,448	)			—
Intercompany payable					8,955				6,470				(15,425	)			—
Long-term debt, net of current portion		238,792						273								239,065
Long-term debt, net of current portion		212,865															212,865
Deferred rent		5,506														5,506
Deferred rent		5,480															5,480
Total liabilities		293,007			11,147			13,119				(22,611	)			294,662
Total liabilities		308,354			9,647				11,220				(21,158	)			308,063
Redeemable common stock		31,631														31,631
Redeemable common stock		44,408															44,408
Total stockholders’ equity (deficit)		(102,899	)		55,989			1,643				(58,310	)			(103,577	)
Total stockholders’ equity (deficit)		(117,793	)		(9,645	)			1,511				7,782				(118,145	)
Total liabilities and stockholders’ equity (deficit)	$	221,739		$	67,136		$	14,762			$	(80,921	)		$	222,716
Total liabilities and stockholders’ equity (deficit)	$	234,969		$	2			$	12,731			$	(13,376	)		$	234,326

(1)

Inventories are shown at cost for all entities

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET

NOVEMBER 3, 2002

	ParentCompany			GuarantorSubsidiaries			Non-guarantorSubsidiaries			Eliminations			Consolidated
	(Amounts in thousands)
ASSETS
Current assets:
Cash, cash equivalents and investments	$	29,418		$	2		$	716		$	—		$	30,136
Accounts receivable, net		29,773			37			1,535						31,345
Inventories(1)		51,846			312			2,548						54,706
Deferred income tax benefit		13,384												13,384
Other		3,853			1			4						3,858
Intercompany accounts receivable		4,485									(4,485	)		—
Total current assets		132,759			352			4,803			(4,485	)		133,429
Property and equipment, net		77,931			629			5,202						83,762
Investment in subsidiaries		(6,022	)								6,022			—
Receivable from consolidated subsidiaries		14,210									(14,210	)		—
Deferred financing costs		8,101												8,101
Deferred income tax benefit		3,217												3,217
Other assets		6,584			24			790						7,398
Total assets	$	236,780		$	1,005		$	10,795		$	(12,673	)	$	235,907
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	6,455		$	—		$	419		$	—		$	6,874
Accrued expenses		16,403			355			46						16,804
Current portion of long-term debt		9,751						408						10,159
Accrued interest expense		6,352												6,352
Income taxes payable		8,374						(1,172	)					7,202
Intercompany accounts payable								4,485			(4,485	)		—
Income taxes payable		8,374						(1,172	)					7,202
Total current liabilities		47,335			355			4,186			(4,485	)		47,391
Intercompany payable					9,468			4,742			(14,210	)		—
Long-term debt, net of current portion		259,104												259,104
Deferred rent		5,144												5,144
Total liabilities		311,583			9,823			8,928			(18,695	)		311,639
Redeemable common stock		54,059												54,059
Total stockholders’ equity (deficit)		(128,862	)		(8,818	)		1,867			6,022			(129,791	)
Total liabilities and stockholders’ equity (deficit)	$	236,780		$	1,005		$	10,795		$	(12,673	)	$	235,907

(1)

Inventories are shown at cost for all entities

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

THIRTEEN WEEKS ENDED ~~MAY~~AUGUST 43, 2003

(UNAUDITED)

	ParentCompany			GuarantorSubsidiaries			Non-guarantorSubsidiaries			Eliminations		Consolidated
	(Amounts in thousands)
Net sales	$	8571,~~490~~649		$	559,021		$	2,~~050~~855		$	—	$	8783,~~595~~525
Cost of sales		3329,~~952~~756			244,177			~~945~~1,457					3435,~~921~~390
Gross profit		5141,~~538~~893			314,844			1,~~105~~398			—		5248,~~674~~135
Selling, general and administrative expenses		4031,~~325~~054			~~545~~6,114			1,~~646~~769					4238,~~516~~937
Operating income (loss)		1110,~~213~~839			(~~514~~1,270	)		(~~541~~371	)		—		109,~~158~~198
Interest expense		65,~~552~~920											65,~~552~~920
Other expense		(~~398~~79	)		(105	)		(~~154~~1	)				(~~552~~185	)
Income (loss) before income taxes		4,~~263~~840			(~~514~~1,375	)		(~~695~~372	)		—		3,~~054~~093
Income taxes		1,713			(216	)		(390	)				1,107
Income taxes (benefit)		1,520			(115	)		(250	)				1,155
Income (loss) before equity in loss of consolidated subsidiaries		23,~~550~~320			(~~298~~1,260	)		(~~305~~122	)		—		1,~~947~~938
Equity in loss of consolidated subsidiaries		(~~603~~1,382	)								~~603~~1,382		—
Net income (loss)	$	1,~~947~~938		$	(~~298~~1,260	)	$	(~~305~~122	)	$	~~603~~1,382	$	1,~~947~~938

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

THIRTEEN WEEKS ENDED ~~APRIL~~JULY 28, 2002

(UNAUDITED)

	ParentCompany			GuarantorSubsidiaries			Non-guarantorSubsidiaries			Eliminations		Consolidated
	(Amounts in thousands)
Net sales	$	8885,~~846~~034		$	1,~~359~~057		$	21,~~074~~965		$	—	$	9288,~~279~~056
Cost of sales		3735,~~316~~574			~~767~~800			1,~~134~~101					3937,~~217~~475
Gross profit		5149,~~530~~460			~~592~~257			~~940~~864			—		5350,~~062~~581
Selling, general and administrative expenses		32,~~757~~522			~~1,138~~947			1,~~325~~502					3534,~~220~~971
Operating income (loss)		1816,~~773~~938			(~~546~~690	)		(~~385~~638	)		—		1715,~~842~~610
Interest expense		5,~~334~~942											5,~~334~~942
Other expense		(26	)					(12	)				(38	)
Other income (expense)		233			(12	)		(180	)				41
Income (loss) before income taxes		1311,~~413~~229			(~~546~~702	)		(~~397~~818	)		—		129,~~470~~709
Income taxes		5,652			(229	)		(254	)				5,169
Income taxes (benefit)		4,732			(295	)		(479	)				3,958
Income (loss) before equity in loss of consolidated subsidiaries		76,~~761~~497			(~~317~~407	)		(~~143~~339	)		—		75,~~301~~751
Equity in loss of consolidated subsidiaries		(~~460~~746	)								~~460~~746		—
Net income (loss)	$	75,~~301~~751		$	(~~317~~407	)	$	(~~143~~339	)	$	~~460~~746	$	75,~~301~~751

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

~~TWENTY~~THIRTY-~~SIX~~NINE WEEKS ENDED ~~MAY~~AUGUST 43, 2003

(UNAUDITED)

	ParentCompany			GuarantorSubsidiaries			Non-guarantorSubsidiaries			Eliminations		Consolidated
	(Amounts in thousands)
Net sales	$	~~180~~251,~~210~~632		$	110,~~252~~273		$	47,~~429~~509		$	—	$	~~185~~269,~~891~~414
Cost of sales		75105,~~588~~244			~~812~~4,988			23,~~136~~692					78113,~~536~~924
Gross profit		~~104~~146,~~622~~388			~~440~~5,285			23,~~293~~817			—		~~107~~155,~~355~~490
Selling, general and administrative expenses		77107,~~104~~938			17,~~674~~789			35,~~056~~044					81120,~~834~~771
Operating income (loss)		2738,~~518~~450			(12,~~234~~504	)		(~~763~~1,227	)		—		2534,~~521~~719
Interest expense		1319,~~158~~078											1319,~~158~~078
Other expense		(~~456~~534	)		(~~192~~297	)		(~~156~~158	)				(~~804~~989	)
Income (loss) before income taxes		1318,~~904~~838			(12,~~426~~801	)		(~~919~~1,385	)		—		1114,~~559~~652
Income taxes		5,771			(599	)		(564	)				4,608
Income taxes (benefit)		7,291			(713	)		(815	)				5,763
Income (loss) before equity in loss of consolidated subsidiaries		811,~~133~~547			(~~827~~2,088	)		(~~355~~570	)		—		68,~~951~~889
Equity in loss of consolidated subsidiaries		(12,~~182~~658	)								12,~~182~~658		—
Net income (loss)	$	68,~~951~~889		$	(~~827~~2,088	)	$	(~~355~~570	)	$	12,~~182~~658	$	68,~~951~~889

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

~~TWENTY~~THIRTY-~~SIX~~NINE WEEKS ENDED ~~APRIL~~JULY 28, 2002

(UNAUDITED)

	ParentCompany			GuarantorSubsidiaries			Non-guarantorSubsidiaries			Eliminations		Consolidated
	(Amounts in thousands)
Net sales	$	~~172~~257,~~612~~647		$	34,~~405~~463		$	46,~~227~~191		$	—	$	~~180~~268,~~244~~301
Cost of sales		73109,~~541~~116			2,~~021~~822			23,~~226~~326					77115,~~788~~264
Gross profit		99148,~~071~~531			1,~~384~~641			2,~~001~~865			—		~~102~~153,~~456~~037
Selling, general and administrative expenses		6496,~~349~~871			23,~~256~~203			23,~~400~~902					69103,~~005~~976
Operating income (loss)		3451,~~722~~660			(~~872~~1,562	)		(~~399~~1,037	)		—		3349,~~451~~061
Interest expense		1116,~~049~~991											1116,~~049~~991
Other income		108						19					127
Other income (expense)		341			(12	)		(162	)				167
Income (loss) before income taxes		2335,~~781~~010			(~~872~~1,574	)		(~~380~~1,199	)		—		2232,~~529~~237
Income taxes		10,022			(366	)		(295	)				9,361
Income taxes (benefit)		14,754			(661	)		(775	)				13,318
Income (loss) before equity in loss of consolidated subsidiaries		1320,~~759~~256			(~~506~~913	)		(85424	)		—		1318,~~168~~919
Equity in loss of consolidated subsidiaries		(~~591~~1,337	)								~~591~~1,337		—
Net income (loss)	$	1318,~~168~~919		$	(~~506~~913	)	$	(85424	)	$	~~591~~1,337	$	1318,~~168~~919

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

~~TWENTY~~THIRTY-~~SIX~~NINE WEEKS ENDED ~~MAY~~AUGUST 43, 2003

(UNAUDITED)

	ParentCompany			GuarantorSubsidiaries			Non-guarantorSubsidiaries			Eliminations			Consolidated
	(Amounts in thousands)
OPERATING ACTIVITIES:
Net income (loss)	$	68,~~951~~889		$	(~~827~~2,088	)	$	(~~355~~570	)	$	12,~~182~~658		$	68,~~951~~889
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		710,~~366~~837			~~629~~1,087			~~397~~604						812,~~392~~528
Amortization of discount on 12.5% notes due 2009		69104												69104
Amortization of deferred loan costs		1,~~000~~541												1,~~000~~541
Loss on disposal of property and equipment		~~547~~608						48						~~547~~656
Partnership losses		~~438~~655												~~438~~655
Equity in loss of consolidated subsidiaries		12,~~182~~658									(12,~~182~~658	)		—
Cash provided by changes in operating assets and liabilities:
Cash provided by (used in) changes in operating assets and liabilities:
Accounts receivable		78,~~653~~309			36(245	)		~~(16~~420	)					78,~~673~~484
Intercompany receivables (net)		(3,~~007~~573	)		(~~513~~1,494	)		35,~~520~~067						—
Inventories		(3,~~044~~597	)		~~311~~1,098			~~130~~(885	)					(3,~~485~~384	)
Other current assets		72(1,084	)		1(3	)		(~~470~~529	)					(~~397~~1,616	)
Other assets		~~(44~~74	)		24			(~~247~~1,221	)					(~~267~~1,123	)
Accounts payable		~~755~~1,855												~~755~~1,855
Accrued expenses		~~1,104~~318			~~337~~1,923			60877						13,~~501~~118
Accrued interest expense		~~565~~(4,585	)											~~565~~(4,585	)
Income taxes payable		(1,~~924~~538	)					(~~568~~819	)					(2,~~492~~357	)
Deferred rent		~~337~~362												~~337~~362
Net cash provided by (used in) operating activities		26,108			(2	)		2,451			—			28,557
Net cash provided by operating activities		21,833			302			2,992			—			25,127
INVESTING ACTIVITIES:
Proceeds from sale of property and equipment		2123												2123
Purchase of property and equipment		(59,~~596~~457	)		(573	)		(2,~~058~~931	)					(712,~~654~~961	)
Sale of short-term investments		7												7
Capital distributions from partnership		~~200~~360												~~200~~360
Net cash used in investing activities		(59,~~368~~067	)		—(573	)		(2,~~058~~931	)		—			(712,~~426~~571	)
FINANCING ACTIVITIES:
Principal payments of long-term debt		(36,~~985~~044	)					(~~337~~420	)					(46,~~322~~464	)
Proceeds from bank borrowings		30,000						273						30,273
Principal payments on 15.25% subordinated debt		(39,294	)											(39,294	)
Redemption of redeemable common stock		(5,000	)											(5,000	)
Net cash used in financing activities		(8,985	)		—			(337	)		—			(9,322	)
Financing fees and expenses		(943	)											(943	)
Effect of exchange rate changes		12						41						53
Net cash used in financing activities		(21,281	)		—			(147	)		—			(21,428	)
Net increase (decrease) in cash and cash equivalents		11,767			(2	)		97			—			11,862
Effect of exchange rate changes		(46	)					(48	)					(94	)
Beginning balance, cash and cash equivalents		29,411			2			716						30,129
Net decrease in cash and cash equivalents		(8,561	)		(271	)		(134	)		—			(8,966	)
Ending balance, cash and cash equivalents	$	41,178		$	—		$	813		$	—		$	41,991
Beginning balance, cash and cash equivalents		28,659			754			716						30,129
Ending balance, cash and cash equivalents	$	20,098		$	483		$	582		$	—		$	21,163
Supplemental disclosures of cash flow information:
Cash received for interest income	$	~~264~~372		$	—		$	—		$	—		$	~~264~~372
Cash paid for:
Interest expense	$	1121,~~490~~969		$	—		$	3		$	—		$	1121,~~493~~972
Income taxes	$	78,~~111~~228		$	—		$	—		$	—		$	78,~~111~~228
Supplemental disclosures of noncash financing activities:
Conversion of accrued interest to subordinated notes	$	533		$	—		$	—		$	—		$	533
Unrealized gain on securities	$	2		$	—		$	—		$	—		$	2
Adjustment of redeemable common stock to fair value	$	(417,~~652~~429	)	$	—		$	—		$	—		$	(417,~~652~~429	)

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

~~TWENTY~~THIRTY-~~SIX~~NINE WEEKS ENDED ~~APRIL~~JULY 28, 2002

(UNAUDITED)

	ParentCompany			GuarantorSubsidiaries			Non-guarantorSubsidiaries			Eliminations			Consolidated
	(Amounts in thousands)
OPERATING ACTIVITIES:
Net income (loss)	$	1318,~~168~~919		$	(~~506~~913	)	$	(85424	)	$	~~591~~1,337		$	1318,~~168~~919
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		710,~~008~~466			~~100~~137			~~307~~543						711,~~415~~146
Amortization of discount on 12.5% notes due 2009		69104												69104
Amortization of deferred loan costs		1,~~039~~552												1,~~039~~552
Gain on disposal of property and equipment		(6	)											(6	)
Loss on disposal of property and equipment		124												124
Partnership losses		~~452~~677												~~452~~677
Equity in loss of consolidated subsidiaries		~~591~~1,337									(~~591~~1,337	)		—
Cash provided by changes in operating assets and liabilities:
Cash provided by (used in) changes in operating assets and liabilities:
Accounts receivable		~~7,425~~579			~~(28~~48	)		~~(27~~217	)					~~7,370~~844
Intercompany receivables (net)		(~~341~~1,051	)		(~~559~~662	)		~~900~~1,713						—
Inventories		41,~~337~~808			~~954~~1,397			(~~348~~452	)					42,~~943~~753
Other current assets		(~~111~~331	)		3443			1						(76287	)
Other assets		30(1,050	)		3541			25(266	)					90(1,275	)
Accounts payable		(2,~~373~~433	)											(2,~~373~~433	)
Accrued expenses		~~(776~~1,441	)		(26116	)		49170						~~(753~~1,495	)
Accrued interest expense		(~~164~~2,884	)											(~~164~~2,884	)
Income taxes payable		4,~~420~~008						(~~253~~779	)					43,~~167~~229
Net cash provided by operating activities		34,768			4			569			—			35,341
Net cash provided by (used in) operating activities		33,266			(25	)		723			—			33,964
INVESTING ACTIVITIES:
Proceeds from sale of property and equipment		615												615
Purchases of property and equipment		(5,870	)		(4	)		(135	)					(6,009	)
Purchase of property and equipment		(8,511	)		23			(378	)					(8,866	)
Sale of short-term investments		1												1
Capital distributions from partnership		~~227~~336												~~227~~336
Net cash used in investing activities		(58,~~636~~159	)		(423	)		(~~135~~378	)		—			(58,~~775~~514	)
FINANCING ACTIVITIES:
Principal payments of long-term debt		(1719,~~660~~015	)					(83	)					(1719,~~668~~012	)
Net cash used in financing activities		(1719,~~660~~015	)		—			(83	)		—			(1719,~~668~~012	)
Effect of exchange rate changes		~~(162~~217	)					(~~144~~36	)					~~(306~~181	)
Change in value of hedging transactions		(151	)											(151	)
Unrealized loss on securities		(1	)											(1	)
Net increase in cash and cash equivalents		11,159			—			282			—			11,441
Change in value of hedging transactions		(361	)											(361	)
Net increase (decrease) in cash and cash equivalents		5,947			(2	)		312			—			6,257
Beginning balance, cash and cash equivalents		25,990			4			217						26,211
Ending balance, cash and cash equivalents	$	3731,~~149~~937		$	42		$	~~499~~529		$	—		$	3732,~~652~~468
Supplemental disclosures of cash flow information:
Cash received for interest income	$	~~293~~835		$	—		$	—		$	—		$	~~293~~835
Cash paid for:
Interest expense	$	917,~~873~~745		$	—		$	—		$	—		$	917,~~873~~745
Income taxes	$	511,~~389~~057		$	—		$	—		$	—		$	511,~~389~~057
Supplemental disclosure of noncash financing activity:
Dividends accrued on mandatorily redeemable preferred stock	$	23,~~722~~458		$	—		$	—		$	—		$	23,~~722~~458
Conversion of manditorily redeemable preferred stock and accrued dividends to subordinated notes	$	38,761		$	—		$	—		$	—		$	38,761
Unrealized loss on securities	$	(1	)	$	—		$	—		$	—		$	(1	)
Adjustment of redeemable common stock to fair value	$	103,~~659~~876		$	—		$	—		$	—		$	103,~~659~~876

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

The following table is derived from the Company’s Consolidated Statements of Income and sets forth, for the periods indicated, the results of operations as a percentage of net sales:

	Percentage of Net SalesThirteen Weeks Ended(“Second Quarter”)				Percentage of Net SalesTwenty-six Weeks Ended(“Six Months”)
	Percentage of Net SalesThirteen Weeks Ended(“Third Quarter”)				Percentage of Net SalesThirty-nine Weeks Ended(“Nine Months”)
	May 4,2003		April 28,2002		May 4,2003		April 28, 2002
	August 3, 2003		July 28, 2002		August 3, 2003		July 28, 2002
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	3942.94		42.56		42.23		43.20
Gross profit	6057.16		57.54		57.87		5657.80
Selling, general and administrative expenses	4846.56		3839.27		44.08		38.38
Operating income	11.60		1917.37		1312.89		18.52
Interest expense	7.51		56.87		7.1		6.13
Other income (expense)	(0.62	)	—		(0.4	)	0.1
Income before income taxes	3.57		1311.50		65.34		12.50
Income taxes	1.34		54.65		2.51		5.20
Net income	2.23	%	76.95	%	3.83	%	7.30	%

~~Second~~Third Quarter Fiscal 2003 Compared to ~~Second~~Third Quarter Fiscal 2002

Net sales for the ~~second~~third quarter of fiscal 2003 decreased by $4.75 million, or 5.1% as compared to the ~~second~~third quarter of fiscal 2002. This decrease was principally attributable to ~~(i)~~ a decrease in sales to ~~existing~~ domestic wholesale customers of approximately $211.82 million, and a ~~resulting~~decrease ~~from~~in ansales of approximately $31.81 million for the St. John Home stores, which were closed during the first six months of fiscal 2003. The decrease in sales to domestic wholesale customers was partially due to a reduction of approximately $1.7 million associated with the bankruptcy filing and subsequent liquidation of Jacobson Stores, Inc. In addition, ~~(ii)~~sales ato ~~decrease~~the inCompany’s ~~sales~~three bylargest ~~Company-owned~~wholesale ~~retail~~customers ~~boutiques~~decreased ofduring the quarter by approximately $27.5 million, due to ~~the~~a ~~weak~~reduction ~~economic~~in ~~environment~~their ~~compounded~~inventory bybalances from the ~~war~~end inof ~~Iraq and~~ the ~~threat~~third quarter of ~~the~~fiscal ~~SARS~~2003. ~~virus~~These ~~and~~decreases ~~(iii)~~were apartially ~~decrease~~offset by increases in sales ~~for~~by ~~the~~Company-owned ~~St.~~retail ~~John~~boutiques ~~Home~~and retail outlet stores of approximately $1.3.4 million, ~~which~~and ~~were~~$2.2 million, ~~closed~~respectively, ~~during~~and ~~the~~an ~~first~~increase ~~six~~in ~~months~~international sales of ~~fiscal~~approximately ~~2003~~$2.1 ~~These decreases~~million. ~~were~~Approximately ~~partially~~$1.9 ~~offset~~million byof anthe increase in sales byfor the Company-owned retail ~~outlet~~boutiques ~~stores~~was due to the addition of ~~approximately~~six ~~$2.0~~new ~~million,~~retail ~~due~~boutiques tosince the beginning of the third quarter of fiscal 2002. The increase in ~~part~~sales for the Company-owned retail outlet stores was primarily due to the addition of ~~three~~four new outlet stores since the beginning of the ~~second~~third quarter of fiscal 2002. Sales for Company-owned retail boutiques open at least one year ~~decreased~~increased 167.2% during the ~~second~~third quarter of fiscal 2003 compared to the ~~second~~third quarter of fiscal 2002. ~~Net~~The overall decrease in net sales ~~decreased~~was primarily asthe a result of decreased unit sales of the Knit and Sport product ~~line~~lines.

Gross profit for the second quarter of fiscal 2003 decreased by $0.4 million, or 0.7% as compared with the second quarter of fiscal 2002, but increased as a percentage of net sales to 60.1% from 57.5%. This increase in the gross profit margin was primarily the result of an increase in the gross profit margin on wholesale sales of the Knit product line and an increase in the gross profit margin for the Company-owned retail boutiques due to lower point of sale markdowns.

~~Selling,~~Gross ~~general~~profit ~~and administrative expenses~~ for the ~~second~~third quarter of fiscal 2003 ~~increased~~decreased by $72.3 4 million, or 204.78% ~~over~~as ~~the~~compared ~~second~~with the third quarter of fiscal 2002, ~~and~~but increased slightly as a percentage of net sales to 4857.56% from 3857.24%. ~~Selling,~~This ~~general~~increase ~~and~~in ~~administrative~~the ~~expenses~~gross ~~increased~~profit ~~during~~margin ~~the~~was ~~period~~ primarily ~~due~~the toresult ~~(i)~~of an increase in ~~expenses~~the ~~of approximately~~gross ~~$2.6~~profit ~~million~~margin ~~resulting~~for ~~from~~ the ~~opening~~Company-owned ~~of six~~ retail boutiques due ~~and~~to ~~three~~lower ~~retail~~point ~~outlet stores since the beginning~~ of ~~the~~sale ~~second~~markdowns ~~quarter~~and ~~of fiscal 2002, (ii)~~ an increase in ~~advertising~~sales ~~expenses~~by ofthe ~~approximately~~Company-owned ~~$1.4~~retail ~~million~~boutiques, ~~relating to~~which on a ~~planned~~consolidated ~~increase~~basis inhave ~~advertising~~a ~~expenditures~~higher ~~for~~gross ~~the~~profit ~~first~~margin ~~six~~than ~~months~~sales ofto ~~fiscal~~wholesale ~~2003~~customers. asThese ~~compared~~increases towere ~~fiscal~~partially ~~2002,~~offset ~~(iii)~~by ana decrease ~~increase~~ in ~~design~~the ~~sample~~gross ~~expenses~~profit ofmargin ~~approximately~~for ~~$0.9~~the ~~million~~Knit product line, ~~(iv)~~due anto ~~increase~~a reduction in ~~bad~~the ~~debt~~number ~~expense~~ of ~~approximately $0.5~~units ~~million~~being manufactured and ~~(v)~~sold anwithout ~~increase~~a incorresponding ~~costs~~decrease ~~related~~in to the ~~expansion~~production ~~of the Company’s operations in Japan of approximately $0~~costs.3 ~~million.~~

~~Operating~~Selling, ~~income~~general and administrative expenses for the ~~second~~third quarter of fiscal 2003 ~~decreased~~increased by $74.70 million, or 4311.13% asover ~~compared to~~ the ~~second~~third quarter of fiscal 2002., ~~Operating income~~and increased as a percentage of net sales ~~decreased~~ to 1146.6% from 1939.37%. Selling, general and administrative expenses increased during the ~~same~~ period. ~~This~~primarily ~~decrease~~due to (i) an increase in ~~operating~~expenses ~~income~~of asapproximately a$2.8 ~~percentage~~million, primarily resulting from the opening of ~~net~~six ~~sales~~Company-owned ~~was~~retail ~~due~~boutiques, tothe relocation of two retail boutiques, the expansion of one retail boutique and the opening of four outlet stores since the beginning of the third quarter of fiscal 2002, (ii) an increase in ~~selling,~~sample ~~general~~expenses for the design department of approximately $0.9 million and ~~administrative~~(iii) ~~expenses~~an asincrease ain ~~percentage~~design salary expense of ~~net sales~~approximately ~~which~~$0.5 ~~was~~million. ~~partially~~These increases were partially offset by ana ~~increase~~decrease in ~~the~~advertising ~~gross~~expenses ~~profit~~of ~~margin~~approximately ~~for~~$0.9 million, consistent with the ~~period~~Company’s fiscal 2003 advertising plan.

~~Interest~~Operating ~~expense~~income for the ~~second~~third quarter of fiscal 2003 ~~increased~~decreased by $16.24 million, or 2241.81% ~~from~~as compared to the ~~second~~third quarter of fiscal 2002. ~~This~~Operating income ~~increase~~as ~~was~~a ~~due~~percentage of net sales decreased to an11.0% ~~increase~~from in17.7% during the ~~debt~~same ~~balance~~period. ~~resulting~~This ~~from~~decrease ~~the~~in ~~conversion of~~operating ~~the~~income ~~Company’s~~as ~~preferred~~a ~~stock~~percentage ~~and~~of ~~accrued~~net ~~dividends~~sales was due to ~~senior~~an ~~subordinated~~increase ~~15.25%~~in ~~notes~~selling, ~~during~~general ~~July~~and ~~2002.~~administrative ~~This~~expenses ~~increase~~as a percentage of net sales which was partially offset by aan ~~reduction~~increase in ~~interest~~the ~~rates~~gross onprofit ~~the~~margin ~~Company’s~~for ~~variable~~the ~~rate debt~~period.

First ~~Six~~Nine Months Fiscal 2003 Compared to First ~~Six~~Nine Months Fiscal 2002

Net sales for the first ~~six~~nine months of fiscal 2003 increased by $51.61 million, or 30.14% as compared to the first ~~six~~nine months of fiscal 2002. This increase was principally attributable to (i) an increase in sales by Company-owned retail outlet stores of approximately $46.35 million, partially due to the addition of ~~three~~four ~~new~~retail outlet stores since the beginning of fiscal 2002, (ii) an increase in ~~international~~ sales by Company-owned retail boutiques of approximately $13.76 million, due to the addition of six new retail boutiques since the beginning of fiscal 2002 and (iii) an increase in international sales toof ~~existing~~approximately $4.1 million. These increases were partially offset by a decrease in sales to domestic wholesale customers of approximately $19.48 million, ~~despite~~primarily due to a ~~decrease~~reduction of approximately $68.9 5 million associated with the bankruptcy filing and subsequent liquidation of Jacobson Stores, Inc. ~~These~~and ~~increases were partially offset by~~ a decrease in sales of approximately $23.2 million for the St. John Home stores, which were closed during the first six months of fiscal 2003. Sales for Company-owned retail boutiques open at least one year decreased 8.4.2% during the first nine ~~six~~ months of fiscal 2003 as compared to the first ~~six~~nine months of fiscal 2002. ~~Net~~The overall increase in net sales ~~increased~~was primarily asthe a result of increased unit sales of the Knit product line.

Gross profit for the first ~~six~~nine months of fiscal 2003 increased by $42.9 5 million, or 41.86% as compared with the first ~~six~~nine months of fiscal 2002, and increased as a percentage of net sales to 57.87% from 5657.80%. This increase in the gross profit margin was primarily the result of an increase in the gross profit margin for the Company-owned retail boutiques due to lower point of sale markdowns ~~and an increase in the gross profit margin on wholesale sales of the Knit and Sport product lines~~.

Selling, general and administrative expenses for the first ~~six~~nine months of fiscal 2003 increased by $1216.8 million, or 1816.62% over the first ~~six~~nine months of fiscal 2002, and increased as a percentage of net sales to 44.08% from 38.38%. Selling, general and administrative expenses increased during the period primarily due to (i) an increase in expenses of approximately $4.7 million resulting from the opening of six retail boutiques and three retail outlet stores since the beginning of fiscal 2002, (ii) an increase in advertising expenses of approximately $2.1 million, relating to a planned increase in advertising expenditures for the first six months of fiscal 2003 as compared to fiscal 2002, (iii) an increase in design

primarily due to (i) an increase in expenses of approximately $7.3 million, resulting from the opening of six Company-owned retail boutiques, the relocation of three retail boutiques, the expansion of one retail boutique and the opening of four outlet stores since the beginning of fiscal 2002, (ii) an increase in sample expenses for the design department of approximately $2.5 million, (iii) an increase in advertising expenses of approximately $1.74 million, relating to a planned increase in advertising expenditures for the first nine months of fiscal 2003 as compared to fiscal 2002, (iv) an increase in ~~bad~~design ~~debt~~salary expense of approximately $01.6 2 million, ~~and~~ (v) an increase in costs related to the ~~expansion~~ ~~of the~~ Company’s expanding operations in Japan of approximately $0.67 million. ~~Selling, general~~ and ~~administrative~~(vi) ~~expenses~~an ~~for~~increase ~~the~~in ~~Company~~bad ~~increased~~debt asexpenses ~~a percentage~~ of ~~net~~approximately ~~sales~~$0.6 ~~primarily due to the above items~~million.

Operating income for the first ~~six~~nine months of fiscal 2003 decreased by $714.93 million, or 2329.72% as compared to the first ~~six~~nine months of fiscal 2002. Operating income as a percentage of net sales decreased to 1312.89% from 18.52% during the same period. This decrease in operating income as a percentage of net sales was due to an increase in selling, general and administrative expenses as a percentage of net sales which was partially offset by an increase in the gross profit margin for the period.

Interest expense for the first ~~six~~nine months of fiscal 2003 increased by $2.1 million, or 1912.13% from the first ~~six~~nine months of fiscal 2002. This increase was due to an increase in the debt balance resulting from the conversion of the Company’s preferred stock and accrued dividends to senior subordinated 15.25% notes during July 2002. This increase was partially offset by a reduction in interest rates between the periods on the Company’s variable rate debt.

Liquidity and Capital Resources

The Company’s primary cash requirements are to fund payments required to service the Company’s debt, to fund the Company’s working capital needs, primarily inventory and accounts receivable, and for the purchase of property and equipment. During the first ~~six~~nine months of fiscal 2003, cash provided by operating activities was $2825.61 million. Cash provided by operating activities was primarily generated by net income, a decrease in accounts receivable and ~~inventories and~~ an increase in accrued expenses and accounts payable, while cash used in operating activities was primarily used to fund a decrease in accrued interest expense and income taxes payable and an increase in inventories. The decrease in accounts receivable was primarily due to lower wholesale sales in ~~April~~July 2003 as compared to October 2002, partially due to the ~~April~~July 2003 billing month including only 4 weeks compared to the October 2002 billing month which included 5 weeks and an increase in the liability for payments to some of the Company’s major customers for markdowns due to the timing of the payments. The ~~decrease~~increase in inventory was primarily due to an increase in inventory at the ~~timing~~Company-owned ofretail ~~shipments~~boutiques, due in part to the ~~Company’s~~addition ~~wholesale~~of one ~~customers~~boutique and the ~~Company’s~~relocation ~~annual~~or ~~warehouse~~expansion ~~sale~~of two boutiques since the beginning of fiscal 2003. Cash used in investing activities was $712.4 6 million during the first ~~six~~nine months of fiscal 2003. The principal use of cash in investing activities was for upgrades to the Company’s computer systems, the purchase of electronic knitting machines, the expansion of the Company’s manufacturing facility in Mexico and the construction of leasehold improvements for scheduled new, relocated or expanded ~~relocated~~retail boutiques. Cash used in financing activities was $921.34 million during the first ~~six~~nine months of fiscal 2003, which included the redemption of the Company’s 15.25% subordinated notes (see Note 5 of Notes to Consolidated Financial Statements) net of the additional borrowings under the Company’s credit agreement, the redemption of $5.0 million of the Company’s redeemable common stock from its former Chief Executive Officer and principal payments on its long-term debt.

As of ~~May~~August 43, 2003, the Company had approximately $4470.9 million in working capital and $4221.02 million in cash and marketable securities. The Company’s principal source of liquidity is internally generated funds. The Company also has a $25.0 million revolving commitment from a syndicate of banks (“Revolving Commitment”) which expires on July 31, 2005. The Revolving Commitment is secured and borrowings thereunder bear interest at the Company’s choice of the bank’s borrowing rate (4.250% at ~~May~~August 43, 2003) plus 1.075% or LIBOR (1.~~3125~~125% at ~~May~~August 43, 2003) plus 2.075%. The availability of funds under the Revolving Commitment is subject to the Company’s continued compliance with certain covenants, including a covenant that sets the maximum amount the Company can spend annually on the acquisition of fixed or capital assets, and certain financial covenants, including a maximum leverage ratio, a minimum fixed charge coverage ratio and a minimum interest expense coverage ratio. As of May 4, 2003, the Company was in compliance with all covenants and no amounts were outstanding under the Revolving Commitment. The Company currently has $11.8 million of letters of credit outstanding which reduces the amount available under the Revolving Commitment by a corresponding amount. The Company invests its excess cash in a money market fund.

~~Total~~ of ~~debt~~funds ~~outstanding~~under ~~decreased~~the ~~$3.7~~Revolving ~~million~~Commitment tois ~~$265.6~~subject ~~million~~to ~~during~~ the ~~six~~Company’s ~~months~~continued ~~ended~~compliance ~~May~~with 4certain covenants, ~~2003.~~including a covenant that sets the ~~The~~maximum amount the Company’s ~~outstanding~~can ~~debt~~spend ~~was~~annually ~~comprised~~on ~~primarily~~the acquisition of ~~bank~~fixed ~~borrowings~~or ofcapital ~~$125.7~~assets, ~~million~~and certain financial covenants, ~~senior~~including ~~subordinated~~a ~~12.5%~~maximum ~~notes~~leverage ~~(“12.5%~~ratio, ~~notes”)~~a ofminimum ~~$99.1~~fixed ~~million~~charge ~~and~~coverage ~~senior~~ratio ~~subordinated~~and ~~15.25%~~a ~~notes~~minimum ~~(“15.25%~~interest ~~notes”)~~expense ofcoverage ~~$39~~ratio.3 As ~~million.~~of ~~The~~August ~~Company~~3, ~~redeemed~~2003, the ~~15.25%~~Company ~~notes~~was in ~~full~~compliance onwith ~~May~~all ~~30,~~covenants ~~2003~~and ~~using~~no amounts were outstanding under the Revolving Commitment. The Company currently has $3011.05 million inof ~~additional~~letters ~~borrowing~~of credit outstanding which reduces the amount available under the Revolving ~~Company’s~~Commitment ~~credit~~by ~~facilities~~a ~~and~~corresponding amount. The Company invests its excess cash in a money market fund.

Total debt outstanding decreased $14.8 million to $254.4 million during the nine months ended August 3, 2003. The Company’s outstanding debt was comprised primarily of bank borrowings of $153.7 million and senior subordinated 12.5% notes (“12.5% notes”) of $99.1 million. The Company redeemed its 15.25% subordinated notes in full on May 30, 2003 using $30.0 million in additional borrowing under the Company’s credit facilities and excess cash (see Note 5 of Notes to Consolidated Financial Statements).

The Company’s primary ongoing cash requirements include debt service which consists primarily of principal and interest payments on bank borrowings and interest on its 12.5% notes. The Company believes it will be able to finance its cash requirements for the foreseeable future with internally generated funds and funds available under the Company’s Revolving Commitment. However, the Company’s ability to fund such cash requirements and to comply with all of the financial covenants under its debt agreements depends on its future operating performance and cash flow, which in turn are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond the Company’s control.

The table below details the Company’s material obligations and commitments under contracts and lease agreements in effect as of ~~May~~August 43, 2003:

Contractual Obligations	Total		Fiscal Years								2007		Thereafter
			Fiscal Years
			2003(A)		2004		2005		2006
Contractual Obligations	Total		2003(A)		2004		2005		2006		2007		Thereafter
			(in thousands)
12.5% notes	$	100,000	$	—	$	—	$	—	$	—	$	—	$	100,000
15.25% notes(B)		39,294		39,294		—		—		—		—		—
Variable rate debt		155,242		4,114		18,892		22,119		44,813		65,304		—
Variable rate debt		127,112		5,850		17,957		19,914		34,123		49,268		—
Operating leases		161,537		5,351		20,506		19,787		18,961		18,094		78,838
Operating leases		166,888		10,702		20,506		19,787		18,961		18,094		78,838
Yarn purchase commitment		7,526		7,526		—		—		—		—		—
Yarn purchase commitment		9,554		9,554		—		—		—		—		—
Total obligations	$	424,305	$	16,991	$	39,398	$	41,906	$	63,774	$	83,398	$	178,838
Total obligations	$	442,848	$	65,400	$	38,463	$	39,701	$	53,084	$	67,362	$	178,838

(A)

The amounts shown in this column reflect the amounts to be paid during the remainder of the fiscal year.

~~(B)~~In ~~These~~addition ~~notes~~to ~~were~~the ~~redeemed~~obligations atand ~~face~~commitments ~~value~~above, onduring ~~May~~its 30normal course of business, ~~2003~~the ~~using~~Company ~~cash~~has made certain indemnities, commitments and ~~additional~~guarantees ~~borrowings~~under ofwhich ~~$30~~it may be required to make payments in relation to certain transactions.0 ~~million~~These indemnities include those given to various lessors in connection with facility leases for certain claims arising from such facility or lease and indemnities to directors and officers of the Company to the maximum extent permitted under the laws of the State of Delaware. The Company has also issued guarantees, in the form of letters of credit, to cover contractual commitments, including merchandise purchases from foreign vendors and to secure the payment for potential future workers’s compensation claims. The Company had $11.5 million of letters of credit ~~facilities~~outstanding at August 3, 2003. Of this total, $9.9 million is related to potential future workers’ compensation claims. The Company has accrued a liability for the estimated claims, both reported and

In addition to the obligations and commitments above, during its normal course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These indemnities include those given to various lessors in connection with facility leases for certain claims arising from such facility or lease and indemnities to directors and officers of the Company to the maximum extent permitted under the laws of the State of Delaware. The Company has also issued guarantees, in the form of letters of credit, to cover contractual commitments, including merchandise purchases from foreign vendors and to secure the payment for potential future workers’ compensation claims. The Company had $11.8 million of letters of credit outstanding at May 4, 2003. Of this total, $9.9 million related to potential future workers’ compensation claims. The Company has accrued a liability for the estimated claims, both reported and incurred but not yet reported. The duration of these indemnities, commitments and guarantees varies, and in certain cases, is indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. The Company has not recorded any liability for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets other than as noted.

In incurred ~~addition~~but tonot ~~the~~yet ~~fiscal~~reported. ~~year~~The ~~2003~~duration ~~payments~~of ~~included~~these ~~on the table above~~indemnities, ~~the~~commitments ~~Company~~and ~~anticipates purchasing~~guarantees ~~property~~varies, and ~~equipment~~in ofcertain ~~approximately $14.8 million during the remainder of fiscal 2003~~cases, ~~but~~ is ~~not contractually committed to do so~~indefinite. The ~~estimated~~majority ~~$14.8 million will be used principally for (i) the construction~~ of ~~leasehold~~ ~~improvements~~these ~~for relocated retail boutiques located in Beverly Hills~~indemnities, ~~California,~~commitments ~~Chicago, Illinois,~~ and ~~Manhasset,~~guarantees ~~New~~do ~~York,~~not ~~(ii)~~provide ~~the~~for ~~expansion~~any limitation of the ~~retail~~maximum ~~boutiques~~potential ~~located~~future inpayments ~~Houston,~~the ~~Texas~~Company ~~and~~could ~~Costa~~be ~~Mesa,~~obligated ~~California,~~to ~~(iii) the construction of St~~make. ~~John~~The ~~shops within the~~ Company’s ~~major~~has ~~wholesale~~not ~~customer~~recorded ~~locations,~~any ~~(iv)~~liability ~~the~~for ~~expansion~~these ~~of the Company’s manufacturing facility in Mexico~~indemnities, ~~(v)~~commitments ~~upgrades to the Company’s computer systems~~ and ~~(vi) the construction of leasehold~~ ~~improvements~~guarantees ~~and~~in the ~~related~~accompanying ~~lease~~consolidated ~~deposit~~balance ~~for~~sheets aother ~~flagship~~than ~~boutique~~as ~~in Japan~~noted.

In addition to the fiscal year 2003 payments included on the table above, the Company anticipates purchasing property and equipment of approximately $10.0 million during the remainder of fiscal 2003, but is not contractually committed to do so. The estimated $10.0 million will be used principally for (i) the construction of leasehold improvements for relocated retail boutiques located in Beverly Hills, California and Manhasset, New York, (ii) the expansion of the retail boutique located in Houston, Texas (iii) the construction of St. John shops within the Company’s major wholesale customer locations and (iv) the construction of leasehold improvements for a flagship boutique in Japan.

SJKI must rely on distributions, loans and other intercompany cash flows from its subsidiaries to generate the funds necessary to satisfy the repayment of its outstanding loans. Except for restrictions under applicable law, there are no material restrictions on distributions to the Company from the Company’s wholly owned subsidiaries that have guaranteed the Company’s payment obligations under its 12.5% notes.

The Company may repurchase, from time to time, a portion of its 12.5% notes, subject to market conditions and other factors. No assurance can be given as to whether or when or at what prices such repurchases will occur. In addition, the Company may be required to repurchase up to $5.0 million annually of the common stock beneficially owned by Bob Gray, Marie Gray or Kelly Gray (the “Gray family”). Any such repurchases would be limited by the restrictions of the agreements under the credit facilities and senior subordinated notes. During November 2002, the Company redeemed, at fair market value, as determined by the board of directors, 89,621 shares of SJKI’s common stock beneficially owned by Bob Gray at a total cost of $5.0 million.

SJKI has not paid any cash dividends since the completion of the mergers in July 1999. SJKI’s ability to pay dividends is restricted by the terms of its senior secured credit facilities and 12.5% notes. SJKI does not anticipate the payment of any cash dividends on its common stock in the future.

The Company’s EBITDA (EBITDA generally represents the net income of the Company excluding the effects of interest expense, income taxes, depreciation and a majority of the items included in other income and expense) as defined in its credit agreement for its senior secured credit facilities was approximately $3447.26 million and $4160.37 million for the first ~~six~~ nine months of fiscal 2003 and 2002, respectively, and $1413.34 million and $2119.75 million for the ~~second~~third quarter of fiscal 2003 and 2002, respectively. EBITDA as defined by the Company may not be consistent with similarly titled measures of other companies. EBITDA is not a defined term under generally accepted accounting principles (“GAAP”) and is not an alternative to operating income or cash flow from operations as determined under GAAP. EBITDA is used to calculate certain covenants under the Company’s credit agreement. The Company believes that EBITDA provides additional information for determining its ability to meet future debt service requirements; however, EBITDA should not be construed as an indication of the Company’s operating performance or as a measure of liquidity.

The table below shows the reconciliation from ~~operating~~net income to EBITDA (as adjusted per the terms of the credit agreement) for the ~~second~~third quarter and first ~~six~~nine months of fiscal years 2003 and 2002:

	Thirteen Weeks Ended					~~Twenty-six Weeks Ended~~	Thirty-nine Weeks Ended
	May 4, 2003		April 28, 2002			May 4, 2003			April 28, 2002
	August 3, 2003		July 28, 2002				August 3, 2003			July 28, 2002
	(in thousands)					~~(in thousands)~~	(in thousands)
Operating income	$	10,158	$	17,843		$	25,521		$	33,451
Net income	$	1,938	$	5,751			$	8,889		$	18,919
Depreciation and amortization		3,967		3,693			8,392			7,415
Income taxes		1,155		3,958				5,763			13,318
Deferred rent expense		156		132			336			265
Interest expense		5,920		5,942				19,078			16,990
Licensing income		—		27			—			135
Other (income) expense		185		(40	)			988			(167	)
Consolidated EBITDA	$	14,281	$	21,695		$	34,249		$	41,266
Depreciation and amortization		4,137		3,732				12,528			11,146
Deferred rent expense		26		132				362			397
Licensing income		—		—				—			135
Adjusted EBITDA	$	13,361	$	19,475			$	47,608		$	60,738

Credit Facilities

The Company is a party to a credit agreement with a group of financial institutions, which initially provided for an aggregate principal amount of loans totaling $215 million. The credit agreement consists of three facilities: (i) tranche A facility totaling $75 million, (ii) tranche B facility totaling $115 million and (iii) the revolving credit facility totaling $25 million which matures July 31, 2005.

Borrowings under the tranche A facility and the revolving credit facility bear interest at a floating rate, based upon the leverage ratio of the Company, which was the bank’s borrowing rate plus 1.075% or LIBOR plus 2.075% at ~~May~~August 43, 2003. Borrowings under the tranche B facility bear interest at a floating rate, also based upon the leverage ratio of the Company, which was the bank’s borrowing rate plus 2.075% or LIBOR plus 3.075% at ~~May~~August 43, 2003. In addition, the Company is required to pay a commitment fee on the unused portion of the revolving credit facility of 0.5% per year.

Borrowings under the tranche A facility began to mature quarterly on October 31, 1999, while borrowings under the tranche B facility began to mature quarterly on October 31, 2000. The credit agreement permits the Company to prepay loans and to permanently reduce revolving credit commitments, in whole or in part, at any time. In addition, the Company is required to make mandatory prepayments of tranche A and B facilities, subject to certain exceptions, in amounts ~~equal~~up to (i) 5075% of excess cash flow (as defined in the credit agreement) and (ii) 100% of the net cash proceeds of certain dispositions of assets or issuances of debt or equity of of the Company or any of its subsidiaries (in each case, subject to certain exceptions and subject to a reduction to zero based upon the Company’s financial performance).

The obligations of the Company under the credit agreement are guaranteed by each domestic subsidiary of the Company, including St. John, and to the extent no adverse tax consequences would result from such guarantees, each foreign subsidiary of the Company. The credit agreement and the related guarantees are secured by (i) a pledge of 100% of the capital stock of each domestic subsidiary of the Company, including St. John, and 65% of each foreign subsidiary of the Company and (ii) a security interest in, and mortgage on, substantially all the assets of the Company and each domestic subsidiary of the Company, including St. John, and to the extent no adverse tax consequences would result therefrom, each foreign subsidiary of the Company.

The credit agreement requires the Company to comply with specified financial ratios, including a minimum interest coverage ratio, a maximum leverage ratio and a minimum fixed charge coverage ratio. ~~The~~Each ~~credit~~ratio ~~agreement~~is ~~also~~calculated ~~contains~~using ~~additional~~EBITDA. ~~covenants~~In ~~that, among other things, restrict~~ the ~~ability~~event of ~~the~~non-compliance ~~Company~~with toany ~~dispose~~ of ~~assets,~~these ~~incur additional indebtedness~~ratios, ~~pay~~the ~~dividends,~~Company ~~create~~would ~~liens~~be ~~on assets, make investments, loans or advances and engage~~ in ~~mergers~~default orunder ~~consolidations.~~the ~~The~~ credit agreement. prohibits the Company from declaring or paying any dividends or making any payments with respect to the Company’s senior subordinated notes if it fails to perform its obligations under, or fails to meet the

The credit agreement also contains additional covenants that, among other things, restrict the ability of the Company to dispose of assets, incur additional indebtedness, pay dividends, create liens on assets, make investments, loans or advances and engage in mergers or consolidations. The credit agreement prohibits the Company from declaring or paying any dividends or making any payments with respect to the Company’s senior subordinated notes if it fails to perform its obligations under, or fails to meet the conditions of, the credit agreement or if such payment creates a default under the credit agreement. The credit agreement contains customary events of default. In the event of default, the total amount of the outstanding debt plus any accrued interest would become immediately due and payable. At ~~May~~August 43, 2003, the Company was in compliance with all covenants.

Effective May 30, 2003 the Company amended its credit agreement. The amendment allowed the Company to borrow an additional $30.0 million under the tranche B facility. The additional borrowing increased the overall maximum for the tranche B facility to approximately $122.0 million. The amendment also increased the interest rate on the total outstanding balance of the bank borrowings by increasing the current spread over the banks borrowing rate and LIBOR by 0.75% for each of the three facilities. The Company paid fees of approximately $1.0 million to complete the amendment. The Company used these funds, along with a portion of its available cash, to retire its 15.25% subordinated notes (see Note 5 of Notes to Consolidated Financial Statements).

12.5% Notes

In addition to the credit facilities described above, the Company has $100 million of 12.5% notes outstanding. The 12.5% notes are unsecured and mature on July 1, 2009. The 12.5% notes bear interest at a rate of 12.5% per year and were issued at 98.616% of the actual face value. Interest on such notes is payable semiannually to the holders of record. The notes are subject to redemption by the Company on or after July 1, 2004 at a premium starting at 6.25% and decreasing to zero at July 1, 2008. The indenture governing the notes limits, among other things, the payment of dividends, the incurrence of additional indebtedness and other restricted payments. The indenture contains customary events of default.

Redeemable Common Stock

SJKI is a party to a stockholders’ agreement with Vestar/Gray Investors, LLC, Vestar Capital Partners III, L.P. and the Gray family, which states, among other things, that prior to a public offering of SJKI common stock, if Bob Gray ceases to serve as Chairman or Chief Executive Officer of St. John or SJKI or if the employment with SJKI of Marie Gray or Kelly Gray ceases for any reason, then he or she will have the right to require SJKI to purchase the shares of SJKI common stock beneficially owned by them, at fair value, up to a maximum of $5.0 million of such common stock for all the Grays during any 12 month period. If any of the Grays are terminated without “cause” or resigns for “good reason,” as these terms are defined in their employment agreements with the Company, then he or she will have the right to require SJKI to purchase the shares of SJKI common stock beneficially owned by them, up to a maximum of 25% of the total shares held by such terminated or resigning Gray employee during any 12 month period. This agreement may be limited by the terms of the agreements related to the credit facilities and the senior subordinated notes.

At the end of fiscal 2002, Bob Gray retired from his position as Chairman of the Board and Chief Executive Officer of the Company. In November 2002, as provided in the stockholders’ agreement, pursuant to Mr. Gray’s request, the Company redeemed at fair market value, as determined by the board of directors, 89,621 shares of SJKI’s common stock beneficially owned by him at a total cost of $5.0 million, or $55.79 per share.

The value of the Company’s redeemable common stock, as reported on the Company’s Consolidated Balance Sheets, decreased from $54.1 million at November 3, 2002 to $31.6 million at August 3, 2003. This reduction was due to the purchase of shares from Mr. Gray as discussed above, as well as a decrease in the fair market value of the Company’s common stock as determined by the Company’s board of directors.

Critical Accounting Policies

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. As such, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet dates and the reported amounts of revenue and expense during the reporting periods. Actual results could significantly differ from such estimates.

The Company believes that the following accounting policies are among the most critical because they involve significant judgments and uncertainties and could potentially result in materially different results under different assumptions and conditions.

Inventories

Inventories are stated at the lower of the cost to purchase and/or manufacture the inventory or the current estimated market value (lower of cost or market). The Company regularly reviews its inventory quantities on hand and records a provision for excess and obsolete inventory based primarily on the Company’s estimated forecast of product demand and production requirements. Any significant change in the anticipated demand for the Company’s products could cause the Company to revise its estimate of excess and obsolete inventory, which could affect the Company’s reported results.

Revenue Recognition

Sales to the Company’s wholesale customers are recognized when the goods are shipped and title passes. Sales are recognized upon purchase by customers at the Company’s retail store locations at the point of sale. The Company has recorded reserves to estimate sales returns by customers based on historical sales return results. Actual return rates have historically been within management’s expectations and the reserves established. However, in the unlikely event that the actual rate of sales returns by customers changes significantly, the Company’s reported results could be affected.

Wholesale Markdowns

The Company has arrangements with some of its major wholesale customers which may result in the Company reimbursing them for markdowns. The Company records an estimate of its liability under these arrangements at the time of sale, based upon historical experience. These estimates are based in part on projected sales and markdowns for these customers into the future. While historical experience has been within management’s expectations, any significant variation from the projected sales or markdowns could cause the Company to change its estimates. Any such change in the Company’s estimates could affect the Company’s reported results.

Accounts Receivable

The Company performs ongoing credit evaluations of its wholesale customers and adjusts the credit limits based upon payment history and the customer’s current financial status. The Company continuously monitors its receivable balances and maintains a provision for estimated credit losses based upon the Company’s historical experience and any specific customer collection issues that have been identified. The Company’s accounts receivable are concentrated in the apparel industry, primarily with its three major customers. The risk of collection is concentrated within this industry and with these specific customers. As a result of this concentration, a change in the credit worthiness of the companies within the apparel industry could cause the Company to revise its estimate of credit losses, which could have a significant affect on the Company’s reported results.

Insurance Program

The Company is partially self-insured for its workers’ compensation insurance coverage. Under this insurance program the Company is liable for a deductible of $500,000 for each individual claim. The Company records a liability for the estimated cost of claims both reported and incurred but not reported based upon its historical experience. The estimated costs include the estimated future cost of all open claims. The Company will continue to adjust the estimates as the actual experience dictates. A

~~significant~~Insurance ~~change~~Program ~~in the number or dollar amount of claims could cause the Company to revise its estimate of potential losses and affect its reported results.~~

Inflation

The Company does not believe that inflation had a material impact on the sales reported for the first ~~six~~nine months of fiscal year 2003.

Forward Looking Statements

This Quarterly Report on Form 10-Q contains certain statements which describe the Company’s beliefs concerning future business conditions and the outlook for the Company based on currently available information. Wherever possible, the Company has identified these “forward looking” statements (as defined in Section 21E of the Securities Exchange Act of 1934) by words such as “anticipates,” “believes,” “estimates,” “expects” and other similar expressions. The forward looking statements and associated risks set forth herein may include or relate to: (i) the Company’s anticipated purchases of property and equipment during the remainder of fiscal 2003, (ii) the Company’s belief that it will be able to fund its working capital and capital expenditure requirements with internally generated funds and the use of its revolving credit facility and (iii) the Company’s anticipation that it will not pay cash dividends on its common stock in the future.

These forward looking statements are subject to risks, uncertainties and other factors which could cause the Company’s actual results, performance or achievements to differ materially from those expressed in, or implied by, these statements. In addition to the factors that may be described in this report, the following factors could cause actual results to differ from those expressed in any forward looking statements made by the Company: (i) the financial strength of the retail industry and the level of consumer spending for apparel and accessories, (ii) the financial health of the Company’s principal customers, (iii) the Company’s ability to develop, market and sell its products, (iv) increased competition from other manufacturers and retailers of women’s clothing and accessories, (v) general economic conditions and (vi) the inability of the Company to meet the financial covenants under its credit facilities and senior subordinated notes.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company has exposure to fluctuations in foreign currency exchange rates for the revenues derived from sales to its foreign customers denominated in foreign currency. In order to reduce the effects of such fluctuations, under established risk management practices, the Company may enter into foreign exchange forward contracts. These contractual arrangements are typically entered into with a major financial institution. The Company does not hold derivative financial instruments for speculative trading. The primary business objective of this program is to secure the anticipated profit on sales denominated in foreign currencies. Forward contracts are usually entered into at the time the Company prices its products. The Company’s primary exposure to foreign exchange fluctuation is on the Euro. The Company did not hold any forward contracts to sell Euros at August 3, 2003.

The ~~primary~~Company ~~business~~purchases ~~objective~~its ofshoes ~~this~~and ~~program~~leather isgoods, toas ~~secure~~well ~~the~~as ~~anticipated profit~~various onother ~~sales~~raw ~~denominated~~materials, from companies located in ~~foreign~~Europe. ~~currencies~~The purchase of these items is completed in Euros. ~~Forward~~In ~~contracts~~order ~~are~~to ~~usually~~reduce ~~entered~~the ~~into~~effect atof the fluctuation ~~time~~in the ~~Company~~exchange ~~prices~~rate ~~its~~between ~~products.~~the ~~The~~Euro ~~Company’s~~and ~~primary~~the ~~exposure~~U.S. todollar, ~~foreign~~the ~~exchange~~Company ~~fluctuation~~may isenter oninto ~~the~~forward ~~Euro~~contracts. The Company did not hold any forward contracts to ~~sell~~purchase Euros at ~~May~~August 43, 2003.

The Company ~~purchases~~has made a decision to use its ~~shoes~~sales ~~and~~made ~~leather~~in ~~goods,~~Euros as ~~well~~a asnatural hedge ~~various~~for ~~other~~the ~~raw~~purchases ~~materials,~~of ~~from~~inventory ~~companies~~items ~~located~~made in ~~Europe.~~Euros ~~The~~for ~~purchase~~fiscal ofyear ~~these~~2003. ~~items~~There iscan ~~completed~~be inno ~~Euros.~~assurance Inthat ~~order~~this tostrategy ~~reduce~~will fully offset the ~~effect~~Company’s offoreign ~~the~~currency ~~fluctuation~~exposure. inThe ~~the~~Company ~~exchange~~is ~~rate~~also ~~between~~exposed to market risks related to ~~the~~fluctuations ~~Euro~~in ~~and~~interest ~~the~~rates ~~U.S.~~on ~~dollar~~its variable rate debt, ~~the~~which ~~Company~~consists ~~may~~primarily ~~enter~~of ~~into~~bank ~~forward~~borrowings ~~contracts~~under the credit agreement. ~~The~~At ~~Company~~August ~~did~~3, ~~not~~2003, ~~hold~~the ~~any~~Company ~~forward~~had ~~contracts~~no tooutstanding ~~purchase~~hedging ~~Euros~~contracts atassociated ~~May~~with 4,interest ~~2003~~rates.

The Company ~~has~~also ~~made~~holds afixed ~~decision~~rate tosubordinated ~~use~~notes. For fixed rate debt, changes in interest rates generally affect the fair market value, but not earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not influence fair market value, but do affect future earnings and cash flows. The Company has managed its ~~sales~~exposure ~~made~~to changes in ~~Euros~~interest asrates by issuing part of its debt with a ~~natural~~fixed ~~hedge~~interest ~~for~~rate. Assuming that the ~~purchases~~balance of ~~inventory~~variable ~~items~~rate ~~made~~debt inremains ~~Euros~~constant, ~~for~~a ~~fiscal~~one ~~year~~percentage ~~2003.~~point increase in LIBOR from the ~~There~~first ~~can~~day beof nothe ~~assurance~~year ~~that~~would ~~this~~result ~~strategy~~in ~~will~~an ~~fully~~annual ~~offset~~increase ~~the~~in ~~Company’s~~interest ~~foreign~~expense ~~currency~~of ~~exposure~~approximately $1.5 million.

The Company is also exposed to market risks related to fluctuations in interest rates on its variable rate debt, which consists primarily of bank borrowings under the credit agreement. At May 4, 2003, the Company had no outstanding hedging contracts associated with interest rates.

The Company also holds fixed rate subordinated notes. For fixed rate debt, changes in interest rates generally affect the fair market value, but not earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not influence fair market value, but do affect future earnings and cash flows. The Company has managed its exposure to changes in interest rates by issuing part of its debt with a fixed interest rate. Assuming that the balance of variable rate debt remains constant, a one percentage point increase in LIBOR from the first day of the year would result in an annual increase in interest expense of approximately $1.3 million.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

~~Within~~The ~~the 90-day period prior to the filing of this Quarterly Report on Form 10-Q, the~~ Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Co-Chief Executive Officers and the Chief Financial Officer, of the design and operation of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-1415(ce) and 15d-1415(ce)). Based upon that evaluation, the Co-Chief Executive Officers and the Chief Financial Officer concluded that the design and operation of the Company’s disclosure controls and procedures were effective as of the end of the period coverd by this report to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes in Internal ~~Controls~~Control

~~There~~In ~~were~~connection nowith ~~significant~~such ~~changes~~evaluation, no change in the Company’s internal ~~controls~~control orover infinancial ~~other~~reporting ~~factors~~was identified that ~~could~~occurred ~~significantly affect~~during ~~such controls subsequent to~~ the ~~date~~period ofcovered ~~the~~by ~~Co-Chief~~this ~~Executive~~report ~~Officers’~~ and ~~Chief~~that ~~Financial~~has ~~Officer’s~~materially ~~most recent evaluation~~affected, ~~including~~or ~~any~~is ~~corrective~~reasonably ~~actions~~likely ~~with~~to ~~regard~~materially toaffect, ~~significant~~the ~~deficiencies~~Company’s ~~and~~control ~~material~~over ~~weaknesses~~financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 2. Changes in Securities and Use of Proceeds

None

Item 3. Defaults upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

(a)

Exhibits required by Item 601 of Regulation S-K.

431.1 ~~Amended~~Certification ~~and~~of ~~Restated~~Co-CEO ~~Credit~~pursuant ~~Agreement~~to ~~dated~~Section ~~May~~302 ~~30,~~of ~~2003~~the Sarbanes-Oxley Act of 2002

31.2

Certification of Co-CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3

Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(b)

Reports on Form 8-K.

None

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: ~~June~~September 1615, 2003

ST. JOHN KNITS INTERNATIONAL, INCORPORATED (REGISTRANT) By: /s/KELLY GRAY Kelly Gray Co-Chief Executive Officer By: /s/BRUCE FETTER Bruce Fetter Co-Chief Executive Officer By: /s/ROGER G. RUPPERT Roger G. Ruppert Executive Vice President—Finance and Chief ~~Financial~~FinancialOfficer ~~Officer~~ (Principal Financial Officer and Principal Accounting Officer)

CERTIFICATION

I, Kelly Gray, certify that:

1. I have reviewed this quarterly report on Form 10-Q of St. John Knits International, Incorporated;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report.

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on the required evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and to the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

June 16, 2003

By: /S/KELLY GRAY Kelly Gray Co-Chief Executive Officer

CERTIFICATION

I, Bruce Fetter, certify that:

1. I have reviewed this quarterly report on Form 10-Q of St. John Knits International, Incorporated;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on the required evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

June 16, 2003

By: /S/BRUCE FETTER Bruce Fetter Co-Chief Executive Officer

CERTIFICATION

I, Roger G. Ruppert, certify that:

1. I have reviewed this quarterly report on Form 10-Q of St. John Knits International, Incorporated;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on the required evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

June 16, 2003

By: /S/ROGER G. RUPPERT Roger G. Ruppert Chief Financial Officer

EXHIBIT INDEX

Exhibit Number		Description of Exhibit
ExhibitNumber		Description of Exhibit
4.1		Amended and Restated Credit Agreement dated May 30, 2003
31.1		Certification of Co-CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Co-CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.3		Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

3734

Filing Compare · ST JOHN KNITS INTERNATIONAL INC